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Policy guidance needed for renewables

Policy guidance needed for renewables

The future energy system in Australia is built on an assumption of renewables in the electricity grids, but the pipeline of projects may not last beyond 2020.

Clean Energy Council chief executive Kane Thornton says the recent report from the council outlined about $7.5 billion in funds committed to projects that would contribute to the Renewable Energy Target of 33,000 gigawatt hours by 2020.

“There is significant momentum in renewables development,” Thornton says. “We’ll meet the target before 2020. Over half of the projects we need to reach the target have closed and some are under construction.”

The Renewable Energy Target (RET) was designed to cover large-scale power generation with financial incentives to the investors. Increasing renewables in the grid is one way to reduce carbon emissions while maintaining economic growth.

He says the current RET projects are evenly split between utility-scale solar photovoltaic, and wind farms, with technologies such as biomass and solar-thermal (where steam is created by concentrated sun rays) not being invested in for the 2020 RET.

“Biomass is still generating power at municipalities and in the sugar industry, but it isn’t attracting the investors,” Thornton says. “Solar-thermal is being looked at by the federal government, which has committed funds to develop it. It’s just not commercial yet.”

He says renewables provide about 17 per cent of Australian power usage, with hydro accounting for 10 per cent, and wind and solar comprising 7 per cent between them.

The irony of the situation is that as renewables become commercially viable investments, with robust and affordable technology, there is no further policy guidance from the government.

Costs are down

The next phase in the renewable energy race is uncertain because the federal government does not have an RET beyond 2020, instead committing to a simple emissions abatement of 26-28 per cent on 2005 levels by 2030. Thornton says the good news is that the main renewables technologies – wind and solar PV – have become investable and their costs have dropped in the past decade.

“In the past few years, the cost of large-scale solar PV has halved,” he says. “It’s also highly effective, especially in the northern states.”

Another force that will push the uptake of renewables is the “uninvestable” status of coal-fired generation.

“No company will build a new coal plant in this country, and no one will raise finance for it,” Thornton says.

However, he says the hoped-for transition technology of gas being used to back up renewables in the grid is looking increasingly unlikely. “Gas-fired plants are not going to be built when the gas prices are where they are.”

He says that leaves renewables, which are becoming the cheapest form of new power generation.

“To build anything else is the more expensive option,” he says.

Thornton says this is a big year for renewable energy, including the construction of Snowy Hydro. Projects that are already under way, have been completed in 2017 or will start this year, add up to 3549 MW of new capacity with the big winners Queensland and NSW, which will each see more than $2 billion of investment based on current announcements. He says the piece missing is the government creating policy certainty and price signals with how various generation technologies are treated.

The glaring void

“We’re in a policy void after 2020,” Thornton says. “The federal government is doing its climate review and some of the states are making policy.”

He says the post-2020 regime is likely to be a blend of a new RET, a form of emissions-intensity scheme (where low-EI renewables enjoy an advantage over high-EI coal) and perhaps some version of the scheme in the ACT where the government operates a reverse-auction contract-for-difference.

“The only RET after 2020 is in Victoria, where they are aiming for a 40 per cent renewables grid by 2025.”

Some of the projects due to come online by 2020 may not be as certain as once thought, a leading expert has warned. Anthony Arrow, a partner at Pinsent Masons law firm who specialises in renewable developer clients, says the current pipeline is encouraging at first look, but there is a glaring void: a less-than liquid market because of the reluctance of utilities to write power purchase agreements (PPA).

“We have clients with development approvals and interest from equity partners, but there’s not enough PPAs.”

He says large players, such as Origin and AGL, have been active in dealing with renewables developers, as long as the projects are of a certain size. And while smaller scale projects can get a PPA, the larger projects – long-term green field developments – are the ones that need a PPA to complete financing, and they have problems getting them.

Sensitive to signals

“The PPA guarantees an income over a period of time, and if you’re an investor, that’s what you want to see,” Arrow says.

He says renewables developments are often on sites that require the full suite of impact studies, as well as the geotechnical surveys and flora and fauna studies.

And the entire industry is sensitive to government signals.

“If there’s uncertainty from government, investors pause.”

He says the current minister, Josh Frydenberg, has promised to look at getting more equity into the sector. But in the meantime there were many projects being pitched but not able to “get away”.

“I have just closed a 90-megawatt PV project in northern Queensland, and there was no shortage of equity for that deal.”

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